03 October 2014

The Economy May Have Hit a Tipping Point for Wage Growth

It won't be until employees have choices about where to work that we will see wage growth, a key to progress. Ben Casselman reports at fivethirtyeight.com on a statistic that could signal a turn in labor market conditions.

Some people are unemployed because they lost their job. Others left their job or decided to rejoin the labor force and are looking for one. For the first time since the Great Recession began, the number in each group is roughly the same.

People don't leave a job unless they believe can do better. (Even if doing better means living closer to someone they love, working at a lower income.) Generally speaking, as more people leave jobs of their own choice, they head into better jobs. By contrast, when they are laid off, they often have to take lower-paying jobs. This difference in how they leave - of their own volition or because they are forced - could be the first strong signal that wages are about to start rising faster than inflation.

So many problems that people (rightfully) fret about, problems like stagnating wages and income inequality, might simply be the product of woefully inadequate job growth. It make take a decade of normal job growth to ameliorate these. The good news is that we're on track for creating about 20.5 million jobs this decade. The bad news is that we're coming off a decade in which we lost a million jobs and so far, we've gained only 9.7 million this decade. We're still coming out of a crater.

But with unemployment finally below 6% and still heading down, the labor market is healthy enough that it can start putting upwards pressure on wages.